Judge rules in favour of councils on VAT exemptions

The ruling this week follows a judicial review, heard as an Upper Tribunal Tax and Chancery Chamber preliminary case in July. It was brought by North East recycling business The Durham Company against HMRC in late 2014.

The waste firm – which trades as Max Recycle – argued that HMRC’s ruling in 2011 to introduce VAT exemptions for councils was anti-competitive and gave councils a commercial advantage over private waste businesses offering the same type of service.

But presiding over the case, Mr Justice Warren declared in Monday’ his unwillingness to assume, “let alone find, that any particular local authority is or has been acting beyond its powers”.

Verdict

The verdict will come as a relief to some local authorities, many of which have established trade waste collection services in recent years.

In his ruling, Mr Justice Warren made clear he considers councils have ‘no power’ to provide trade waste collections on a commercial basis other than through a company in accordance with section 95(1) of the Local Government Act 2003.

However, he added authorities do have a provision to carry out the service in exercise of the powers conferred by section 45(1)(b) of the Environmental Protection Act 1990.

The judge continued he had “no doubt” that section 45(1)(b) was a “special legal regime” by which councils are obliged to offer commercial collections if requested by an occupier of premises and does so for a reasonable charge.

Submitting on behalf of the claimant at the July hearing, Alan Bates argued it it ‘is not credible’ to suggest that a local authority which is actively marketing its trade waste collection services, in competition with commercial operators, is fulfilling its duty to serve as the waste collection arranger of last resort.

‘Essential’

“For all I know, each of those local authorities is one where commercial waste collections are carried out only following a request.”

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Justice Warren

But Justice Warren continued that it was “essential” for the Durham Company to show how it is affected by the activities of those local authorities operating under the legal regime. “For all I know, each of those local authorities is one where commercial waste collections are carried out only following a request and for a reasonable cost reflecting cost recovery and no surplus”, he added.

Justice Warren surmised that if The Durham Company wished to argue that there are in fact local authorities which are acting outside the powers and duties conferred and imposed by section 45(1)(b) it needs to identify a specific case or cases.

“The facts relevant to those cases will then have to be investigated in detail, with the relevant local authorities being given the opportunity to explain and defend their actions”, he concluded.